Collection
Actions Could Be Accelerated on Some Large Dollar Balance Due Accounts

Issued on June 22, 2009

Highlights

Highlights of
Report Number: 2009-30-090 to the
Internal Revenue Service Commissioner for
the Small Business/Self-Employed Division

IMPACT ON TAXPAYERS

While
the majority of taxpayers owing $1 million or more are actively pursued for
collection through various programs, TIGTA identified some large dollar
taxpayers’ accounts where actions could be taken to accelerate accounts to
field personnel for investigation and possible enforcement action. By accelerating all accounts where taxpayers
owe $1 million or more, TIGTA estimates the Internal Revenue Service (IRS) could
potentially collect $12.1 million in revenue.

WHY TIGTA DID THE AUDIT

This
audit was initiated to evaluate the source and status of large dollar ($1
million or greater) individual balance due accounts and the actions being taken
by the IRS to collect the amounts owed.

The
IRS’ Unpaid Assessments - Potentially Collectible Inventory - reflects dollars
available to be collected and is the focus of the IRS’ collection efforts.It contains accounts in notice inventory and
delinquent taxpayer accounts in the Automated Collection System, Collection
Field function, Queue accounts awaiting field assignment, and accounts shelved
due to a lack of IRS resources.Delinquent taxes remain in the inventory until they are either paid,
abated, or until the collection statute of limitations expires, which is
usually 10 years from the tax assessment date.The review focused on accounts with a balance due of $1 million or more
that were in either the Queue or shelved for 1 year or more.

WHAT
TIGTA FOUND

On December
22, 2007, there were 2,454 individual taxpayers in the IRS’ potentially
collectible inventory who each owed over $1 million in taxes, interest, and penalties.While the vast majority of these individuals
(2,006) were being actively pursued for collection, TIGTA identified 448
accounts totaling approximately $1.2 billion that were in the Queue or had been
shelved.Among the 448 accounts, 214
accounts were in the Queue or in shelved status for more than a year.Using automated information systems and the
IRS’ Fiscal Year 2007 collection rate to review a statistically valid sample of
155 accounts, TIGTA determined that $12.1 million may be collectible from 27
taxpayers who owe a total of approximately $110 million.

TIGTA
determined that three factors contributed to large dollar accounts lingering in
the Queue or shelved status.First, IRS
officials identified and were working to resolve a programming flaw that
allowed accounts to remain in shelved status even when the taxpayer’s account
reached a balance of $1 million or more.Second, TIGTA found erroneous codes were preventing some accounts from
appearing in the group managers’ inventory in the ENTITY Case Management System
(ENTITY). Third, the ENTITY is currently
programmed to identify and accelerate accounts with assessments of $1 million
or more, but does not take into consideration the related interest and penalties
accruals that continue to add to the total account balance owed until paid or
otherwise satisfied.

WHAT TIGTA RECOMMENDED

TIGTA
recommended the Director, Planning and Analysis, Small Business/Self-Employed
Division, follow through with actions to ensure the programming changes are
designed, implemented, and functioning in accordance with Collection function policies
and procedures.Also, the Director,
Planning and Analysis, should explore the cost and benefits associated with
changing the ENTITY acceleration criteria of $1 million to include penalties
and interest accruals.If the potential
benefits outweigh the cost, the Director should coordinate with appropriate
officials to implement the change to the acceleration criteria.

In
their response to the report, IRS officials agreed with the recommendations and
stated that they have taken actions to address them.Programming changes to both the Inventory
Delivery System and the ENTITY were implemented in January 2009, and management
plans to monitor these systems to ensure that they are functioning in
accordance with Collection function policies.The IRS also initiated a research study to explore changing the ENTITY
acceleration criteria and plans to review the results to determine if any
appropriate actions are necessary.

READ THE
FULL REPORT

To view the report,
including the scope, methodology, and full IRS response, go to: